I cut this from a 2.5% stake to 1.5% in the 9.80s range - for a "conservative" instrument like this we just got a monster rally of 17%ish in 4 days. If this breaks over $10 and holds, I'll get back much of the position (we held it over 4% of portfolio last week) but I assume all tests of resistance fail until proven otherwise in a bear market. Further, the premium on this closed end fund is now a whopping 34%! It traditionally peaks out at 20% ...
As PIMCO's El-Erian saysAs far as specific bond investment vehicles, he identified mortgages, banks, municipal bonds, and high-quality investment grade corporate debt as well as the top emerging markets. Pimco is the largest bond-fund manager in the world.Investment in stocks will lag, he said, until there's an increase in confidence that equities will provide solid rewards without all the risk, and the economy shows signs of stability.
"What 2008 has told you and what 2009 is telling you is that for the average investor conditions have changed and therefore the game plan has got to change, which means don't go and chase what are very attractive valuations from a historical standpoint," El-Erian said.
I'd rather miss out on some upside in 2009 in return for more safety so I'm going to keep working this bond angle although I am an equity guy - RCS is a mortgage focus, municipal bonds (if my prediction that the Federal Reserve backstops all municipal debt in 2009) should sing higher at some point, and I want only the highest quality corporate debt (although the spread on junk bonds versus Treasuries is incredible - still too early for me as a risk averse person) With that said, this is such a new world where you have to predict what the government does more than know about business metrics, so it's not out of the question that a Fed pushed too far might backstop every piece of commercial paper in the US. It sounds outrageous but anything is possible - at which point a junk bond ETF would be money in the bank.
To the end of highest quality corporate debt I love the way iShares Investment Grade Bond (LQD) is acting of late and am hoping the next sell off gives us a better price to begin buying this. I feel I missed the opportunity to buy at the "right price" so I am going to see if the market gives us another chance - than I can hold a paired trade of RCS/LQD. With LQD I don't think the Berkshire's, Johnson & Johnson's, Walmarts of the world are going to default short of a visit to a Mad Max future ... in which case we'll have bigger worries than what bond fund I bought.
Long PIMCO Strategic Global Government Fund in fund; no personal position
2 comments:
trader
How about FMY. It seems to be similar to RCS without the premium. Have a good year and thanks for all your hard work.
The strange thing about FMY is it traditionally has had a discount of 8 to 10% this year and is now back to 0%. So its really no different than RCS in that its WAY above it normal range (8 to 10%)
What I don't know is why one closed end fund with similar holdings to the other trades at a premium most of the time, and the other trades at a discount all the time. Their holdings are relatively close, a bit more risk in FMY (i.e. Wells Fargo debt)
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